Brokers are raving about this ASX 200 tech share benefiting from ChatGPT’s rise

If you’re looking for exposure to the tech sector and generative AI, then NextDC Ltd (ASX: NXT) shares could be one way to do it.

That’s the view of a collection of brokers that are raving about this ASX 200 tech share following last week’s trading update.

That update revealed that a series of recent customer wins means that its contracted utilisation has increased by 43%, or 35.9 megawatts (MW), to 120MW since 31 December. Its new S3 data centre in Sydney has been a key driver of this growth.

What are brokers saying about this ASX 200 tech share?

Brokers are overwhelmingly bullish on this ASX 200 tech share and have been reiterating their buy ratings in recent days.

For example, the team at Goldman Sachs, which has a buy rating and improved price target of $14.90 on its shares, was impressed with its update and believes global tech giant Microsoft might have been responsible for much of the increase. It said:

NextDC today announced its contracted commitments have increased by +35.9MW (+43%) since Dec-22, driven by what we believe to be a MSFT contract at S3. This announcement ends a softer period for new wins for NXT (particularly in Sydney), while also highlighting a shift towards longer-term commitments from hyperscalers (rather than ‘just-in-time’ contracting).

Over at Citi, its analysts responded by retaining their buy rating on the ASX 200 tech share with an improved price target of $14.45. They were particularly pleased with the longer than normal contract length, which could be a sign of a strong demand outlook. Citi commented:

The key positive from the contract announcement was the hyperscale customer committing to a contract with a long billing ramp (5-6 years vs. 2-3 typically) which points to a strong demand outlook but more importantly suggests that the customer could have been concerned about supply constraints in the Macquarie Park area. Further, we see potential for other Hyperscalers bringing forward their requirements to lock-in available capacity.

Citi also feels that the company could be a good option for investors looking for exposure to the ChatGPT-driven generative AI trend. It adds:

We reiterate our Buy call (increase our target price by +14%) and see NXT as a play on a secular shift towards cloud computing (with Gen AI another use case/demand driver) and see it as a defensive growth play in a slowing macro environment.

Finally, Morgans was pleased with the news and retained its add rating with an improved price target of $13.50. It also appears to believe Microsoft could be NextDC’s big customer, Morgans said:

Microsoft has recently cancelled its planned Data Centre build in Lane Cove Sydney. They had applied for development approval for a 100MW DC build but after a prolonged period the council only approved a 30MW facility and Microsoft opted not to proceed with this. At the same time that Microsoft looks supply constrained demand remains incredibly strong. Despite concerns that the cloud is slowing Microsoft is the somewhat unique beneficiary of the exponential demand for ChatGPT which runs on Microsoft’s Azure Cloud Infrastructure.

All in all, investors may not be able to buy shares in ChatGPT, but they could potentially get indirect exposure to its incredible growth through this ASX 200 tech share.

The post Brokers are raving about this ASX 200 tech share benefiting from ChatGPT’s rise appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Nextdc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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